Investing In Silver

Buying silver as an investment has become increasingly popular over the past decade or so, and has been going on at a somewhat less vigorous pace for at least a quarter century, since the inflationary days of the 1970s. The lure of precious metals as an investment, and as a hopefully rock-solid refuge against the flowing, ebbing, and shifting of the general economy, is timeless.

This is a good time to buy silver as an investment for several reasons. One is that other people are also buying silver as an investment. The aggregate demand increases every year, and tends to drive the price up. Although this means that silver investment is arguably something of a self-fulfilling prophecy, with silver becoming a better investment precisely because large numbers of people are buying it as an investment, that does not change the fact that you can buy silver now and sell it again when the price has been driven even higher by the demand spiral.

There are basically two approaches to buying silver. You buy it as bullion, meaning that you intend to sell it when its commodity value has risen enough to make this profitable. Or, you can purchase collectible silver coins which have a high premium above spot, with the idea of reselling them shortly at an even higher price to another silver investor or to a collector to whom price is no object.

The method you pick is based on your own personal style and preferences, as well as your financial state, the objectives of your investment, and what is easily available to you. Each method has advantages and disadvantages, and you may want to try your hand at both if you have enough money, diversifying your approaches in order to increase your chances that one of your strategies will succeed.

Investing in Silver as a Commodity

If you opt to buy silver as a commodity, then you are buying it mostly for its intrinsic value as a precious metal, rather than the premium which the object it was made into commands. The current and future spot values of the metal are your primary concern, and you want to buy silver with as low a premium above spot as possible.

The idea of buying silver as a commodity investment is founded on the belief that the current price of silver is lower than it will be in the near future (within a few years at most), and that if you buy it now you will be able to sell it for much more soon. There are some indications that this will be case, since the price of silver has reached its highest level since 1989 in 2010; there is risk of inflation and economic instability; and demand for silver is growing sharply due to technological uses.

If you want to invest in silver for its commodity value rather than collectible value, you want to steer well clear of collectible coins, since they have a large premium above spot price. Your best technique is to acquire silver for as little money above spot as possible – meaning that less famous bullion coin releases, silver rounds, and silver bars are among the best forms of silver to buy if you are taking this approach.

Investing in silver as a commodity involves a fairly low maintenance strategy. Once you have acquired your stock of silver, you can just “sit on it” and wait for the price to rise to the point where you feel it is worthwhile to sell. This is also the downside of the process of using this metal as a commodity, however – your silver will not earn you any money in the interim.

Basically, you accumulate silver while its price is below a certain level, stop buying when it reaches a higher level, and sell for a large, lump-sum profit when it reaches a yet higher price level. You can introduce a bit more complexity – but also flexibility and profit potential – into your strategy by only selling part of your silver (a quarter, a third, half) when a “good price” is reached, retaining the rest in case the price soars even higher to an unexpected level.

This way, you will lock in a decent profit even if the silver price plunges shortly after you make your sale, but will also have some silver in reserve just in case the price manages to rise higher. This is a form of hedging and risk reduction which can be a quite profitable method to make use of.

Investing in Silver as a Collectible

The other strategy is to buy silver as a collectible rather than just for its commodity value. This involves having a much wider knowledge of individual coin types and how well-liked they are by collectors. You will need to pick out coins that currently have a fairly low premium above spot but are likely to develop a higher premium rapidly.

This is not quite as difficult as it sounds, since many of the most collectible coins come in series, so you can judge how a coin in the series is apt to appreciate based on the coins from previous years. Furthermore, special editions of any government struck bullion coins are very valuable as well, with inset gems, coloring, gilding, and other features that increase their rarity. Proofs are usually a good investment in this regard, especially if they are in superb condition and you take care to keep them that way.

Forms of silver to avoid for collectible investing include silver rounds and silver bars, neither of which ever gain much of a premium above spot except in very rare, unpredictable cases.

Collectible silver investments are better for a steady income than commodity investments, since you can buy and sell on an ongoing basis rather than waiting for a single “jackpot”. The downsides are that sometimes your forecasts will go awry and the coin will not appreciate as you are hoping, and that you will need to learn a lot and watch the markets very closely – the approach is far less “fire and forget” than investing in silver for its spot value.

Should You Invest Every Penny in Silver?

No matter how enthusiastic you are about silver, and no matter how brilliant the prospects in this metal look, you should not commit every single cent you own to buying into the silver market. No investment is absolutely certain – there is always an element of the gamble in every investment purchase. The best way to hedge against this risk is to diversify – buying other assets such as art, gold, jewels, or ordinary stocks and bonds, or simply leaving part of your disposable money as cash, which is perhaps the safest hedge of all.

With this single caveat, however, buying silver as an investment is an excellent way to try to make some extra money in today’s climate. The potential returns are very high, and the metal is likely to retain quite a bit of intrinsic value even if the price is subject to some short-term volatility. Today is a great time to start investing in silver, or to expand your investments – at a time when an upward correction in precious metal prices is very likely, and when many fine quality collectible coins are being struck.

Historical Price of Silver

Historically, there have been ups and downs in the price of silver, often caused by the actions of speculators such as the notorious Hunt Brothers of Texas. However, a study of silver prices will indicate that – unlikely gold prices – they have steadily gained since the early 1970s. A huge spike in prices continued through the early 1980s, but then the price fell to a moderate level again – though with a rising trend. The rise in silver price continued steadily through the 1990s, and has picked up pace in the last decade, leading to the current expansion – which not even powerful, short-side market manipulations have been able to damp.

As soon as the “brakes” applied by some large silver investors – who are currently dominating the market by owning some 40% of the short selling futures contracts – are eased, which is likely to be in the near future, the price of silver is apt to rise abruptly very soon.

The increase of prices is based at least partly on solid economic factors – the technological demand for silver, which is a superb conductor, much better than copper – rather than just “bubble” speculation. Some believe that silver could rise as high as just a little under $100 per ounce, and although this may be overly optimistic, there is a lot of data to support a strong upward movement in prices soon.

There are occasional claims that silver has already reached its peak, and that its price is therefore likely to stay the same or fall, based on the fact that silver prices in 2010 were higher than they have been in any year since 1989. Although there is a slight chance this is true, such pessimism is probably unfounded. Consider the recent actions of the U.S. Commodities Futures Trading Commission, or CFTC, which is a sober and official body that is keenly aware of current precious metals trends.

The CFTC Commissioner recently stated the Commission’s belief that a few large players, such as HSBC and other banks, have deliberately – and artificially – driven silver prices down by manipulating the market, in order to benefit from selling short on a massive scale. Since an investigation is underway, the CFTC clearly believes that silver is currently underpriced by a considerable margin.

This is good news for silver buys in several ways. It means that the current prices, despite their historic highs, are still being held lower than the true market clearing price, making this an excellent time to buy “low” in order to sell much higher in the near future.

Also, it indicates that the prices are likely to correct upwards strongly before too long. Either the CFTC’s actions will interrupt the price-depressing conspiracy of these large buyers, thus allowing the price to rebound to what it really should be based on growing industrial demand for the precious metal, or else some of the large players themselves will cease their strategy in order to benefit on long positions rather than selling short, since their actions will make a long position profitable as well.

Regardless of how the current market manipulation is eventually broken – whether through government regulatory action, or simply the incentive to stop their “price blockade” that selling long offers to the large banks currently selling short, to increase their profits even further – it is sure to be disrupted before very much more time goes by. Those with a good stock of silver in their portfolio will stand to benefit immensely from this – so this is a superb time for you to start investing in silver.